MG106 Strategic Management
London School of Economics and Political Science
June 25, 2025
| WHO | Who is the paying customer? |
| WHAT | What value do we offer? |
| HOW | How do we create and deliver it? |
Every business is a unique WHO-WHAT-HOW combination
You have 15 minutes to discuss ALL questions with your group
Use the WHO-WHAT-HOW framework
WHO did Blockbuster serve?
WHAT did customers get?
HOW did they operate?
This model printed money… until it didn’t
How did they answer WHO-WHAT-HOW?
Was Netflix cheaper than Blockbuster?
Was it more convenient?
So why would anyone use it?
This model FAILED spectacularly
“Why would I wait when Blockbuster is down the street?”
Think about each version…
What customer problem did they solve?
What was revolutionary about
“unlimited rentals, no late fees”?
1997 - FAILURE
📀 DVD by Mail • $4 + shipping • Late fees
1999 - BETTER
📀 Subscription Model • 4 movies/month • Prepaid
2000 - BREAKTHROUGH
🎯 Unlimited Plan • 3 at a time • NO late fees
2001 - DOMINATION
🚀 Distribution centers • Overnight delivery • Recommendations
The Innovation
Customer Psychology
They turned the disadvantage of delivery time into an advantage
What else did Netflix develop?
Think about:
Both innovations reduced costs AND improved service
What did they do?
Why do you think it failed?
Could Blockbuster afford to match Netflix?
Think about their cost structure…
2002: “Online rental serves a niche market”
2004: Finally launches Blockbuster Online
2005: Eliminates late fees (loses $600M revenue)
2007: Total Access (online + stores)
2010: Bankruptcy
What went wrong?
Cost Structure
The Dilemma
Different business models have different economics
How would you summarize the differences?
Think WHO-WHAT-HOW…
| Blockbuster | Netflix | |
|---|---|---|
| WHO | Impulse renters | Movie enthusiasts |
| WHAT | Instant gratification | Unlimited entertainment |
| HOW | Physical stores | Distribution + algorithms |
| Revenue | Rental + late fees | Subscription |
| Cost Base | High (stores) | Low (warehouses) |
| Inventory | Distributed | Centralized |
Same industry, completely different games
Netflix transformed 4 times in 4 years
Each change solved a specific customer problem
Blockbuster: 9,000 stores → Had to defend them → Couldn’t adapt
Netflix: No stores → Free to innovate → Could experiment
Your assets can become your prison
Sometimes one element changes everything
Great strategies often break “industry rules”
READ THE COLA WARS CASE
Tomorrow: How two companies
succeeded with different models
in the same industry
Remember: Today’s industry giant
can be tomorrow’s cautionary tale